Formosa Plastics Group’s (FPG, 台塑集團) corporate governance could see a ratings downgrade by the stock exchange regulator, after the group confirmed yesterday that several executives and employees had resigned amid a bribery scandal.
In addition, the conglomerate’s oversight might affect its major subsidiaries’ capital increase applications in the future, the Securities and Futures Bureau said.
“We will express our reservations toward FPG subsidiaries’ future capital increase applications if criminal charges are filed against those executives,” a bureau official who declined to be named said by telephone, after the group was engulfed in the biggest bribery scandal in its 61-year history.
Market watchers said a reduction of the group’s corporate governance rating by the Taiwan Stock Exchange (TWSE) could affect state-run funds' attitude towards shares of its subsidiaries.
“All appropriate actions will be taken,” TWSE Chairman Lee Sush-der (李述德) said yesterday, without elaborating.
About 20 executives of the group’s Formosa Plastics Corp (台塑), Formosa Chemicals & Fibre Corp (台灣化學纖維) and Nan Ya Plastics Corp (南亞塑膠) are said to be involved in the scandal.
However, as the scandal is considered an internal matter, the Financial Supervisory Commission will not step in and initiate tangible measures against the group in the absence of criminal convictions against the executives for breach of trust and for breaking the Securities and Exchange Act (證券交易法), the bureau official said.
Shares of the group’s major subsidiaries dropped in Taipei trading yesterday on the bribery news, prompting speculation regulators would suspend their trading.
“According to revised guidelines, [the situation] does not warrant a halt in the trading of FPG shares,” TWSE corporate communications department associate Vivien Hou (侯采雯) said.
Trading is only halted to prevent prolonged disruptions and uncertainty in the market when companies are unable to provide immediate verification of major issues affecting trading of their shares, Hou said.
Since the group has been forthcoming with disclosures regarding the matter and the case has been submitted to prosecutors, the situation does not warrant a halt in the trading of FPG shares, Hou said.
Last month, the legislature approved a mechanism that is allows trading suspensions if a listed company is hit by scandals or has material information that could affect its share price. The new measure is to take effect on Jan. 15 next year.
Nonetheless, the group’s listed members are likely to face heightened scrutiny and audits in the future, as the case involved problematic internal governance involving the companies’ management, board of directors and accountants, Hou said.
Financial services company PricewaterhouseCoopers said that the ramifications of the FPG scandal will materialize next year when the TWSE releases its annual corporate governance report, pending the outcome of court rulings.
“FPG is currently a strong performer in terms of corporate governance, but we expect the company to take a hit in that category next year, in addition to diminished investor confidence,” PricewaterhouseCoopers sustainable development services chairman Daniel Chu (朱竹元) said.
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